Apple’s (NASDQ:AAPL) first-quarter financial results contained some very discouraging signs, making the stock a sell in the near-term. Up until now, it has been easy to defend Apple stock.
Sales of the company’s electronic devices — its iPhones and MacBooks — had been slowing, but the services side of the business — streaming and Apple Pay — more than made up for the shortfall. However, problems are compounding. Apple can’t maintain the growth it has enjoyed since the iPhone was introduced in 2007.
Troubling Numbers
Apple’s Q1 print was poor. So bad that the company distracted from the dismal numbers by announcing it will buyback $110 billion of its own stock.
It’s the largest share repurchase in corporate history. The move worked. Media headlines focused on the stock buyback and not the financial results. Investors have bid the stock up nearly 10% since the earnings were announced.
The new share repurchases represent a 22% increase over last year’s $90 billion authorization. Apple also said it would pay a 25 cent dividend going forward, a one cent increase. While investors cheered the stock buyback program and dividend hike, they overlooked some troubling numbers.
Overall sales in Q1 declined 4% from a year earlier, while iPhone sales, which account for half Apple’s revenue, fell 10% year over year during the quarter.
The poor results weren’t confined to the iPhone. The “other products” segment that includes the Apple Watch and AirPod headphones also saw sales decline 10%.
No indication was given on how sales are performing for the Vision Pro virtual reality headset that went on sale at the start of this year and retails for $3,500. Management declined to provide any forward guidance for the current second quarter.
Pulling Out All The Stops
Apple is doing all it can to right the ship and get its sales and stock growing again. In addition to launching the Vision Pro headset, Apple has unveiled new versions of its iPad Air and iPad Pro tablets and teased a big artificial intelligence announcement at its upcoming June developer conference.
This as CEO Tim Cook embarks on a global tour, visiting China, India and crisscrossing the U.S.
There have also been media reports that Apple is developing microchips to run AI software in data centers and that the company is negotiating with Alphabet (NASDAQ:GOOG/NASDAQ:GOOGL) to add that company’s Gemini AI technology to future versions of the iPhone.
A major revamp of the iPhone, possibly to include AI, certainly seems to be needed.
Some analysts and investors are taking the news reports as signs that Apple is quickly recovering. But most of what’s been reported amounts to little more than rumors at this point. Apple needs to get new and exciting products into the hands of consumers.
It’s current product lineup has grown stale. Apple also faces growing competition, especially in markets like China where companies such as Huawei have supplanted it.
Sell AAPL Stock
AAPL stock is down 1% on the year and has only risen 6% in the last 12 months. The company has trailed the bull market of the past year. It has also underperformed vis-à-vis most other megacap technology stocks.
At the recent Berkshire Hathaway (NYSE:BRK.A/NYSE:BRK:B) annual meeting, it was revealed that Warren Buffett trimmed his stake in Apple by 13%. This came as a shock to many as Buffett has, until now, been one of Apple’s biggest fans and shareholders. Apple accounts for 40% of Berkshire Hathaway’s equity portfolio, its largest holding.
Clearly, Buffett has some concerns about Apple and what is happening with the company right now. Investors should share Buffett’s concern. Apple stock is not a buy.
On the date of publication, Joel Baglole held a long position in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.